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Questions and Answers
In a free market economy, which approach is typically adopted regarding government intervention?
In a free market economy, which approach is typically adopted regarding government intervention?
- Complete government control over resource allocation
- Limited intervention with a laissez-faire approach (correct)
- Moderate intervention to regulate key sectors
- Active intervention in all economic activities
In a command economy, economic decisions are primarily made by individual consumers and businesses, reflecting diverse market demands.
In a command economy, economic decisions are primarily made by individual consumers and businesses, reflecting diverse market demands.
False (B)
According to the law of demand, what happens to the quantity demanded of a product as its price increases?
According to the law of demand, what happens to the quantity demanded of a product as its price increases?
decreases
The law of supply states that as prices increase, quantity ________ increases.
The law of supply states that as prices increase, quantity ________ increases.
Match the following terms with their definitions:
Match the following terms with their definitions:
What condition characterizes a market shortage?
What condition characterizes a market shortage?
A surplus in the market occurs when there is excess demand, causing the price to fall below the equilibrium price.
A surplus in the market occurs when there is excess demand, causing the price to fall below the equilibrium price.
What is one factor that can lead to a surplus in a market?
What is one factor that can lead to a surplus in a market?
Goods for which demand decreases as income rises are called __________ goods.
Goods for which demand decreases as income rises are called __________ goods.
How does an increase in the price of a complementary good typically affect the demand for a related good?
How does an increase in the price of a complementary good typically affect the demand for a related good?
An anticipation of future price decreases typically drives current demand upward as consumers seek to buy before prices drop.
An anticipation of future price decreases typically drives current demand upward as consumers seek to buy before prices drop.
What happens to the equilibrium price and quantity when there's a rightward shift in the demand curve?
What happens to the equilibrium price and quantity when there's a rightward shift in the demand curve?
What effect do higher resource prices typically have on supply?
What effect do higher resource prices typically have on supply?
________ in technology generally boost production capacity, leading to an increase in supply.
________ in technology generally boost production capacity, leading to an increase in supply.
How do taxes typically affect the supply of goods?
How do taxes typically affect the supply of goods?
Increased demand for a company’s output generally decreases the demand for labor.
Increased demand for a company’s output generally decreases the demand for labor.
Which of the following factors is most likely to increase the demand for labor?
Which of the following factors is most likely to increase the demand for labor?
What is the term for the amount of labor hired at the market-clearing wage?
What is the term for the amount of labor hired at the market-clearing wage?
A labor ________ occurs when the demand for labor exceeds the supply of labor.
A labor ________ occurs when the demand for labor exceeds the supply of labor.
Match the market condition with its description:
Match the market condition with its description:
Flashcards
Market
Market
A place where buyers and sellers interact to exchange goods or services.
Free Market Economy
Free Market Economy
An economy with limited government intervention; also known as capitalism.
Command Economy
Command Economy
An economy where the government owns properties and resources, making economic decisions through central planning; also known as socialism or communism.
Law of Demand
Law of Demand
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Quantity Demanded
Quantity Demanded
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Demand
Demand
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Law of Supply
Law of Supply
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Quantity Supplied
Quantity Supplied
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Supply
Supply
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Market Equilibrium
Market Equilibrium
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Equilibrium Price
Equilibrium Price
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Equilibrium Quantity
Equilibrium Quantity
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Demand Curve
Demand Curve
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Supply Curve
Supply Curve
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Market Disequilibrium
Market Disequilibrium
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Shortage
Shortage
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Surplus
Surplus
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Normal Goods
Normal Goods
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Inferior Goods
Inferior Goods
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Labor Demand
Labor Demand
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Study Notes
- A market is where buyers and sellers exchange goods and services.
Market Classifications
- Free Market Economy: Also known as capitalism, it uses a laissez-faire approach with limited government intervention.
- Command Economy: Also known as socialism or communism, the government owns most properties and resources, and economic decisions are made through a central plan.
Law of Demand
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States that as prices increase, quantity demanded decreases, expressed as Qd = a - b(P). Mababa at mataas
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Quantity Demanded: The number of units a buyer will purchase at a specific price.
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Demand: The set of all quantities demanded at different price levels.
Law of Supply
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States that as prices increase, quantity supplied increases, expressed as Qs = a + b(P). Increase increase
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Quantity Supplied: The number of units a seller will produce at a specific price.
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Supply: The set of all quantities supplied at different price levels.
Market Equilibrium
- Market equilibrium is where quantity demanded equals quantity supplied.
- Market equilibrium is a state of balance where the quantity supplied equals the quantity demanded at a given price.
- Equilibrium Price: The price at which quantity demanded equals quantity supplied.
- Equilibrium Quantity: The quantity demanded and supplied at equilibrium.
- Demand Curve: As the price of goods increases, the quantity demanded decreases.
- Supply Curve: As the price of goods increases, the quantity supplied increases.
- Market equilibrium exists where demand and supply curves intersect.
Market Disequilibrium
- Market disequilibrium is a state of imbalance where quantity demanded does not equal quantity supplied (Qd ≠Qs).
- Shortage: Occurs when there is excess demand, causing the price to fall below the equilibrium price.
- Factors include increased demand, decreased supply, and government price ceilings.
- Surplus: Occurs when there is excess supply, causing the price to rise above the equilibrium price.
- Factors include increased supply, decreased demand, and government price floors.
Factors Affecting Demand
- Tastes: Preferences influence demand; newer items increase demand, while outdated ones decrease it.
- Number of Buyers: More buyers increase demand, while fewer buyers decrease it.
- Income:
- Normal Goods: Demand increases with income.
- Inferior Goods: Demand decreases with income.
- Prices of Related Goods:
- Substitutes: Higher price of one good increases demand for its substitute.
- Complements: Higher price of one good decreases demand for its complement.
- Unrelated Goods: No relationship between prices and demand.
- Consumer Expectations: Anticipation of future price increases can drive current demand.
- Rightward demand shifts increase equilibrium price and quantity.
- Leftward demand shifts decrease equilibrium price and quantity.
Determinants of Supply
- Resource Prices: Higher costs decrease supply, while lower costs increase it.
- Technology: Advances in technology increase production capacity.
- Taxes decrease supply, while subsidies encourage production.
- Prices of Other Goods: Producers may shift to more profitable goods.
- Number of Producers: More producers increase supply, while fewer producers decrease it.
- Producer Expectations: Future price expectations influence current supply decisions.
- Rightward supply shifts decrease equilibrium price but increase quantity.
- Leftward supply shifts increase equilibrium price but decrease quantity.
Labor Market Dynamics
- Labor Demand: The amount of labor employers seek to hire.
- Influenced by demand for output, technology, number of companies, government regulations, and price/availability of other inputs.
- Labor Supply: The amount of labor offered for hire.
- Influenced by number of workers, required education levels, and government policies.
Market Conditions
- Equilibrium Employment: The amount of labor hired at the market-clearing wage.
- Labor Shortage: Demand exceeds supply.
- Labor Surplus: Supply exceeds demand.
- Increased labor demand reduces unemployment when supply remains constant.
- Increased labor supply raises unemployment when demand remains constant.
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